Professor Christopher Magee on U.S. Trade Policy

On Sept. 21 in Academic West, the Bucknell Institute for Public Policy (BIPP) organized a lecture given by Professor of Economics Christopher Magee on current U.S. trade policies. This has been a hot topic in the news lately, as President Donald Trump has imposed many tariffs and policies that not only affect the American economy, but also impact economies around the world.

Magee’s presentation began with a history of the current world trading system. He traced all the way back to the time of the Great Depression, and how America responded to the stock market crash by raising tariffs. In response to the large stock market crash of 1929, new trade regulations, known as Smoot-Hawley tariffs, raised taxes on foreign imports to nearly 50 percent, contrasting the 37 percent that had been in place in 1925. As a reaction to the drastic spike in tariffs, 23 countries agreed to the General Agreement on Tariffs and Trade (GATT) in 1947, promising to reduce tariffs. The GATT has reduced tariff rates over time. In 2016, the average tariff rate for the United States was 3.5 percent. In 1995, the World Trade Organization (WTO) was founded under the goal of preventing high tariffs and increasing global commerce. Today, the WTO consists of 164 countries.

Magee also described more recent history, most notably the trade situation under Trump. According to Magee, Trump’s trade policy is changing world trade in some positive and other negative ways. Trump imposed tariffs on 12 percent of U.S. imports in 2018 alone. Trump is especially targeting China, a long-time economic competitor of the U.S., Magee explained. In July, the president imposed a 25 percent tariff on $50 billion of imports from China, and then imposed a 10 percent tariff on $200 billion on Sept. 24. This tariff will rise again to 25 percent in 2019, and Trump continues to threaten to put tariffs on the remaining $267 billion on Chinese imports.

As a result of the harsh tariffs, China and other countries have retaliated with tariffs on a total of 8 percent of U.S. exports, or about $125 billion. Countries are also challenging the tariffs with the WTO. A rule in favor of the U.S. would allow any country to be able to put tariffs on any product for “national security reasons,” Magee said. However, according to Magee, a rule against the U.S. could prompt Trump to withdraw America from the WTO.

A specific tariff that will especially impact the American economy is a 25 percent tariff on auto and parts imports. During his presentation, Magee stated that the United States is estimated to lose between 120,000 (according to the C.D. Howe Institute) and 195,000 (according to PIIE) jobs. Jobs will mainly be lost in machinery, electronic and transport equipment, and other manufacturing industries. As a result of this, many American auto and parts manufacturers oppose the tariff. It would affect $208 billion of imports, nearly all of which are from allies of the United States.

Magee himself believes that these tariffs will cause an increase in prices for many products for Americans. He said that the industries that will most likely be hurt are industries that use steel and aluminum inputs and agriculture. Many of the tariffs are against steel and aluminum imports, and a large portion of foreign retaliation is against American soybeans, as well as other U.S. exports. Magee stated that his biggest worry is the conflicts between the Trump administration and the WTO. The United States is currently refusing to allow new judges to be appointed to the WTO dispute settlement appeals court, and if this continues there will soon not be enough judges to hear cases through the WTO. According to Magee, this means that “countries can essentially take any trade policy actions that they want and there is no way to have any official rulings on whether the policies are consistent with the rules of the WTO… To me, that signals the end of the rules-based trading system that the world has gradually built up since World War II.”

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